Family businesses are the backbone of any economy and Nigeria is no different. Indeed, family-owned businesses have long been part of Nigerian business life and history, yet so many of the prominent businesses in the early 50s and 60s are no more. What happened to them?

In most family controlled businesses, there comes a time when the owner, usually a parent, when it is time for them to retire, has to sit down and plan for the future of the company. Many owners want to see their business continue and would like to pass it on to members of their own family.

Family businesses face unique challenges. Passing a business down to the next generation is more often than not, unsuccessful. In fact, statistics show that only one-third of all family businesses are successfully transferred to the next generation, and only about 15% are transferred onto the third generation. Succession planning experts site the primary reason for the high failure rate being due to a founder’s failure to effectively plan for the transfer of ownership and management of the business. Here are some issues to consider:

Don’t assume anything

A common mistake that business owners make is assuming their children will want to take charge of the business when the time comes. Are your children interested in running the business in the first place? Don’t just assume that your offspring must be your natural successors. They may not have the inclination or the desire to join the business and may want to follow their own life path and not yours. The next generation has to have the unique combination of wanting to run the business and also being capable of running it effectively.

Can they do the job or not?

Does it have to be a family member that leads the company, no matter the outcome? The best person to succeed you may not be a family member. Many families bring in their children into senior positions that they may not be prepared for. Have you given your children room to grow in the company, or have you held on to the reins so tightly that even those among them who are already in the business have not been able to express themselves, or develop their decision-making or leadership skills?

Do they command respect in their own personal capacity and as a result of their skills, experience and intellect, or are they dismissed or only grudgingly “accepted” as “oga’s” child? If that is the case, then prospects for a successful transition may be bleak.

Working for a competitor to get a better feel of the industry will help build their knowledge of the business and their credibility. Thereafter they may enter the company in a non-management position and develop from there; this model has had some success.

Drive, passion and commitment

The next generation tend to have a different lifestyle than the business founder and entrepreneur who built the business from scratch with blood, sweat and tears. In some instances, they might have been to top educational institutions, have enjoyed the good life and in many cases they have been over-indulged. As a result, they often do not share the same drive, commitment or passion of the founder of the business.

Youth and innovation

Family businesses are dynamic in nature; as members of the younger generation learn from their elders. So too must the older generation be flexible enough to capitalize on and embrace the skills and ideas of the youth to innovate, embrace technology and explore new opportunities. This is crucial for a firm’s long- term survival as it embraces change and seek to remain relevant. Many founders refuse to change with the times and resent any new ideas.

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Are you being fair?

Particularly in a patriarchal society like ours, many families assume that the eldest son or child will take over the business. Of course the owner can make a decision to pass leadership to the child of their choice, but it can be a challenge to try to balance fairness in employing certain children or even grandchildren in a family business with various skill levels, compensation levels and ownership levels as opposed to others. This “natural’ choice may not necessarily be ideal if the candidate has not earned the respect of family members or employees for that particular position. This could build up resentment, jealousy and envy that may bring an outstanding company to its knees. The extended family system often introduces yet further complications that must also be addressed.

Mentor your successor

Mentoring can take several years, even if your successor has worked in the company. It is a good idea to have someone who isn’t a family member but works successfully in the business, serve as the mentor. Carefully evaluate your successor objectively and with input from stakeholders including Directors, investors, managers and employees. Even after handing over the reins, one should continue to assess and stay connected as you gradually disengage.

Deploy a professional selection process

In choosing your successor, identify the best person positioned to move the company forward both internally and externally. The more objective and transparent the process of bringing in the next leader into a business, the smoother the transition and the more likely is the success of the exercise. Successors should be ranked based on key criteria including, educational background, past work experience, prior leadership positions, interpersonal skills, problem solving and decision-making ability and so on. Your successor’s personal strengths and weaknesses as well as their professional and leadership abilities should be of paramount consideration and is of far greater importance than your blood relationship

Would you consider selling the company?

If you are still at the helm of a profitable business and see no real prospects of your children moving it forward, there is the option of selling a stake, or the company in its entirety. The proceeds of the sale will be in the form of financial assets which your heirs will eventually inherit; you can achieve this without them being directly involved in the running of the firm.

Smooth succession planning takes time and should be developed over several years. With careful and objective planning, the transition of a business from one generation to the next, or to a non-family leader, has a better chance of long-term business success and sustainability. The earlier the planning starts, the better.

Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank, practical insights to create a greater awareness and understanding of personal finance.